Production

India to offer green hydrogen production subsidy of up to $0.60/kg — for three years only

$2.13bn budget will also stretch to electrolyser subsidies, linked to local content requirements

India's power and renewable energy minister, Raj Kumar Singh.
India's power and renewable energy minister, Raj Kumar Singh.Photo: MNRE

India is set to offer green hydrogen production subsidies of up to $0.60/kg — a fraction of the incentives on offer in other parts of the world such as the US — and only for three years.

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The rate was revealed as the country published its guidelines for an upcoming pair of subsidy auctions for green hydrogen production and electrolyser manufacturing, while also unveiling plans to hold a demand-side tender.

The auctions will allocate fixed payment per kg of green hydrogen production, or for the electrolyser auction, per kW of electrolyser capacity.

Green hydrogen

Subsidies for green hydrogen last for three years only, capped at 50 rupees per kilogram ($0.60/kg) from the first year of production, 40 rupees the second ($0.49/kg), and 30 rupees ($0.37/kg) in the third. Bidders are required to put their required subsidy per year in their application, with the lowest three-year averages awarded the subsidy.

Each subsidy bid in the auction will also be capped by capacity, although this differs depending on what feedstock the project is using to produce H2.

The government will also hold a second, demand-side tender as part of the green hydrogen production auction — which could account for the other 76bn rupees ($930m) in the budget, although rules for this half of the auction are yet to be published.

Rumoured to be held this summer, India's auctions will be backed by a budget of 197.44bn rupees ($2.4bn) agreed by the Ministry of New and Renewable Energy (MNRE) earlier this year, of which 174.9bn rupees ($2.13bn) is earmarked for subsidies.

Budgets for the two initial auctions have been set at 130.5bn rupees ($1.59bn) for green hydrogen and 44.4bn rupees ($541m) for electrolyser manufacturing.

However, the production subsidy is a fraction of those put forward by the US and EU, which offer producers a maximum $3/kg production tax credit and €4/kg ($4.37/kg) fixed payment respectively, measures which have prompted criticism from power and renewable energy minister Raj Kumar Singh that there is a lack of fair competition.

Electrolysers

Subsidies offered to electrolyser manufacturers may be significantly harder to access than those for green H2 production, as they include strict rules around quality and deployment in the domestic market.

Manufacturers must also ensure 50% of annual sales go towards domestic installations to be eligible for the subsidy.

The auction will also ringfence 300MW of the 1,500MW capacity ceiling for Indian-developed technologies. While individual bids for these technologies have no minimum capacity requirement and can apply for the full 300MW, companies building out internationally-developed electrolyser technology are required to bid at a minimum of 100MW and maximum of 300MW.

Bids are also expected to include a “local value addition” to keep the supply chain based in India, expressed as a percentage of the difference between sale value of the electrolyser and value of imports.

This ensures that a minimum percentage of the sales value of an electrolyser is from locally sourced materials.

Alkaline electrolysers are required to have a minimum local value addition in the first year of 40%, while proton exchange membrane, anion exchange membrane and solid oxide technologies only require 30%. These figures will also rise by 10 percentage points every year of subsidy.

"Biomass-based pathways"?

The green hydrogen guidelines also specify a second pot of funding available for “biomass-based pathways”, although it is not clear if this refers to using biomethane to displace fossil gas in current grey H2 production or using biomass-fuelled power generation to produce green hydrogen.
The EU’s delegated acts exclude biomass-fired electricity as a power source for electrolysers in their definition of renewable H2, which could create potential barriers from these projects for export to Europe.

However, accessing subsidies for biomass-based pathways could prove difficult for would-be producers. While the auction plans to support a total 450,000 tonnes of annual hydrogen production, bids for projects using all other technologies are capped at 90,000 tonnes per year while biomass-based bids are capped at 4,000 tonnes a year.

This pot also favours smaller companies seeking funding for small-scale projects, as the minimum bid is only 500 tonnes of annual capacity while projects using other technologies must bid for at least 10,000 tonnes-per-year.

All hydrogen projects bidding for subsidies will have to conform to India’s National Green Hydrogen Standard — yet to be published by the ministry.

India plans to support a total of 450,000 tonnes of annual hydrogen production capacity and 1.5GW of electrolyser sales through these tenders. The country is targeting five million tonnes of annual green H2 production capacity by 2030, which could indicate that it may hold further tenders or seek to support these projects via more indirect policy support.
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IndiaGreen H2Subsidies
Published 29 June 2023, 12:17Updated 29 June 2023, 12:48